886 research outputs found
Exact inference in diagnosing value-at-risk estimates: A Monte Carlo device
In this note a Monte Carlo approach is suggested to determine critical values for diagnostic tests of Value-at-Risk models that rely on binary random variables. Monte Carlo testing offers exact significance levels in finite samples. Conditional on exact critical values the dynamic quantile test suggested by Engle and Manganelli (2004) turns out more powerful than a recently proposed Portmanteau type test (Hurlin and Tokpavi 2006). --Value-at-Risk,Monte Carlo test
A note on model selection in (time series) regression models - General-to-specific or specific-to-general?
The paper provides Monte Carlo evidence on the performance of general-to-specific and specific-to-general selection of explanatory variables in linear (auto)regressions. In small samples the former is markedly inefficient in terms of ex-ante forecasting performance. --Model selection,specification testing,Lagrange multiplier tests
Analytical quasi maximum likelihood inference in multivariate volatility models
Quasi maximum likelihood estimation and inference in multivariate volatility models remains a challenging computational task if, for example, the dimension is high. One of the reasons is that typically numerical procedures are used to compute the score and the Hessian, and often they are numerically unstable. We provide analytical formulae for the score and the Hessian and show in a simulation study that they clearly outperform numerical methods. As an example, we use the popular BEKK-GARCH model, for which wederive first and second order derivatives.multivariate GARCH models;quasi maximum likelihood
Did the introduction of the euro impact on inflation uncertainty? - An empirical assessment
We study the impact of the introduction of the European Monetary Union on inflation uncertainty. Two groups of economies, one consisting of three European Union members which are not part of the EMU and one of six OECD member economies, are used as control groups to contrast the effects of monetary unification against the counterfactual of keeping the status quo. We find that the monetary unification provides a significant payoff in terms of lower inflation uncertainty in comparison with the OECD. Regarding the difficulty of quantifying the latent inflation uncertainty, results are found to be robust over a set of four alternative estimates of inflation risk processes.Monetary policy regimes,euro introduction,inflation uncertainty,uncertainty measures,Did the introduction of the euro impact on infla,Hartmann,Herwartz,European Economy. Economic Papers
On the effect of prospective payment system on hospital efficiency and competition for patients in Germany
The introduction of hospital reimbursement based on diagnosis related groups (DRG) in 2004 has been a conspicuous attempt to increase hospital efficiency in the German health sector. In this paper changes of hospital efficiency, quantified as a Malmquist index decomposition in pure technical efficiency change, are analyzed for periods before and after the reform. We implement a two-stage semi-parametric efficiency model that allows for spatial interdependence among hospitals. The results reveal an enhancement in overall efficiency after the DRG introduction. Moreover, an increase in the magnitude of negative spatial spillovers among German hospital performance can be diagnosed. This result is in line with a rise of competition for (low cost) patients. --hospital effciency,data envelopment analysis,spatial analysis,diagnosis related groups
The effects of variance breaks on homogenous panel unit root tests
Noting that many economic variables display occasional shifts in their second order moments, we investigate the performance of homogenous panel unit root tests in the presence of permanent volatility shifts. It is shown that in this case, panel unit root tests derived under time invariant innovation variances lose control over actual significance levels while the test proposed by Herwartz and Siedenburg (2008) retains size control. A simulation study of the finite sample properties confirms the theoretical results in finite samples. As an empirical illustration, we reassess evidence on the Fisher hypothesis. --Panel unit root tests,variance breaks,cross sectional dependence,Fisher hypothesis
A new approach to bootstrap inference in functional coefficient models
We introduce a new, factor based bootstrap approach which is robust under heteroskedastic error terms for inference in functional coefficient models. Modeling the functional coefficient parametrically, the bootstrap approximation of an F statistic is shown to hold asymptotically. In simulation studies with both parametric and nonparametric functional coefficients, factor based bootstrap inference outperforms the wild bootstrap and pairs bootstrap approach according to its size features. Applying the functional coefficient model to a cross sectional investment regression on savings, the saving retention coefficient is found to depend on third variables as the population growth rate and the openness ratio. --Bootstrap,heteroskedasticity,functional coefficient models,Feldstein-Horioka puzzle
A note on the model selection risk for ANOVA based adaptive forecasting of the EURIBOR swap term structure.
The paper proposes a data driven adaptive model selection strategy. The selection crite- rion measures economic ex–ante forecasting content by means of trading implied cash flows. Empirical evidence suggests that the proposed strategy is neither exposed to selection bias nor to the risk of choosing excessively poor models from a parameterized class of candidate specifications.Model selection, Principal components, Factor analysis, Ex–ante forecasting, EURIBOR swap term structure, Trading strategies.
Are Small Countries Able to Set their Own Interest Rates? Assessing the Implications of the Macroeconomic Trilemma
According to the ’macroeconomic trilemma’ the ability of small economies to pursue an independent monetary policy is jointly determined by country specific foreign exchange (FX) rate flexibility and capital mobility. In particular, free floating economies should be able to isolate domestic interest rates even under globalized capital markets. Recent evidence casts doubts if this gain in independence is substantial. Taking advantage of semiparametric functional regression models we study the trade-off among FX stability, capital mobility and monetary autonomy for a panel of 20 developed small economies. Confirming the macroeconomic trilemma, the exposure to foreign interest rates is found to increase with country specific states of exchange rate stability and capital mobility. Gains in monetary independence appear substantial for countries that abdicate to peg their FX rates, but the marginal benefit of tolerating higher exposure to FX volatility quickly vanishes. Free floating economies might therefore be able to moderately stabilize FX rates at little cost.monetary independence, macroeconomic trilemma, monetary policy, exchange rate regime, interest rates, functional coefficients, semiparametric models
Reviewing the sustainability/stationarity of current account imbalances with tests for bounded integration
We investigate for 26 OECD economies if their current account imbalances are driven by stochastic trends. Standard ADF results are contrasted with tests accounting for the bounded support of the current account. Neglecting the latter feature might give misleading results in the sense that ADF based conclusions are biased towards the rejection of unit root features. The current account imbalances are found to be bounded nonstationary for most OECD economies. Panel based test statistics confirm the bounded nonstationarity for these series. --Current account,bounded unit root tests
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